Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The discussion of EFN in the chapter implicitly assumed that the company was operating at full capacity. Often, this is not the case. Assume that

The discussion of EFN in the chapter implicitly assumed that the company was operating
at full capacity. Often, this is not the case. Assume that Rosengarten was operating at 90
percent capacity. Full-capacity sales would be $1,00090=$1,111. The balance sheet
shows $1,800 in fixed assets. The capital intensity ratio for the company is:
Capital intensity ratio = Fixed assets/Full-capacity sales =$1,800$1,111=1.62
This means that Rosengarten needs $1.62 in fixed assets for every dollar in sales when it
reaches full capacity. At the projected sales level of $1,250, it needs $1,2501.62=
$2,025 in fixed assets, which is $225 lower than our projection of $2,250 in fixed assets.
So, EFN is $565-225=$340.
Blue Sky Manufacturing, Incorporated, is currently operating at 90 percent of fixed asset
capacity. Current sales are $747,000. How much can sales increase before any new
fixed assets are needed? (Do not round intermediate calculations and round your
answer to the nearest whole number, e.g.,32.)
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Multinational Business Finance

Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett

16th Edition

013749601X, 978-0137496013

More Books

Students also viewed these Finance questions